What goes up can come down -- and then go back up. That's the story for Viking Therapeutics' (VKTX -0.68%) share price so far this year. The stock jumped nearly 26% year to date by early March. It subsequently gave up all of those gains and then some over the next few weeks.
But Viking announced results on Tuesday from a phase 1 clinical study evaluating its experimental weight-loss drug VK2735. The biotech stock skyrocketed over 60% on Tuesday on the positive news. Should you buy Viking Therapeutics stock after its huge rebound?
About those results
Viking reported that patients in the phase 1 study who received VK2735 lost as much as 7.8% of their body weight after 28 days. The placebo-adjusted mean weight loss for patients taking the drug was as high as 6%.
The study included 41 patients. Ten were in the placebo group; the others were randomly assigned to one of five groups receiving VK2735. Three of those groups received multiple ascending doses of the experimental drug. Patients receiving higher doses demonstrated greater weight loss than those receiving lower doses -- just as Viking hoped would be the case.
Importantly, the safety profile for VK2735 looked good. Viking said that 98% of observed adverse events were mild or moderate. There was one serious adverse event reported with a patient having a history of gallstones experiencing a gallstone obstruction. The most common adverse event was nausea, with 89% of the incidents categorized as mild. No patients dropped out of the study due to nausea, vomiting, or gastrointestinal side effects.
A huge market opportunity
The market opportunity for new weight-loss drugs is huge. Novo Nordisk (NVO -1.22%) has experienced tremendous demand for Wegovy, which first won Food and Drug Administration (FDA) approval in June 2021.
This demand has spilled over to another Novo Nordisk drug -- Ozempic. The FDA approved Ozempic as a treatment for diabetes in 2017. It uses a higher dose of the same active ingredient (semaglutide) that's in Wegovy and is frequently prescribed off-label for obesity.
Eli Lilly (LLY -0.48%) hopes to soon compete against Wegovy and Ozempic in obesity treatment. The big drugmaker's Mounjaro has already won FDA approval for treating diabetes. Lilly could win FDA approval for the drug in the obesity indication later this year. UBS analysts think that Mounjaro could generate peak annual sales of $25 billion, making it the best-selling drug ever.
Time to buy?
With VK2735 showing such promising results targeting an indication with massive market potential, is it time to buy Viking Therapeutics stock? Many investors obviously think so based on the tremendous surge on Tuesday. But it's important to remember that it's still early innings for Viking.
The company plans to advance VK2735 into phase 2 testing in treating obesity by mid-2023. CEO Brian Lian stated in a press release that this study will explore higher doses of the experimental drug over a longer treatment window. It's possible that VK2735 could achieve even greater weight reduction than observed in the phase 1 study.
But it's also possible that Viking could run into problems with a larger clinical trial. Altimmune's (ALT -2.50%) phase 2 results with its weight-loss drug pemvidutide serves as a cautionary tale. Many investors and Wall Street analysts absolutely loved the prospects for pemvidutide. After the company announced phase 2 data last week that identified worrisome side effects, though, shares of Altimmune crashed more than 50%.
There's no reason at this point to expect that Viking will suffer a similar fate as Altimmune. If VK2735 delivers phase 2 results that are as impressive as the results from the phase 1 study, Viking stock should have plenty of room to run. Aggressive investors might want to consider opening a small position in the stock. Risk-averse investors, on the other hand, are better off sitting on the sidelines.